Americans don’t feel great about the economy right now — mortgage rates are on the rise again, as is the cost of gas and there were more job cuts in January than there had been since January 2009, the tail end of the Great Recession. The prospect of buying a home amid all of this can be daunting.
Indeed, the downward sentiment of the economy has embedded its way into the psyche of “middle market” homebuyers, people who are typically repeat buyers and looking for median-priced homes, according to a recent Realtor.com report. These people are nervous about making a home purchase and whether they’ll be able to afford the monthly mortgage payments or other housing payments in the long run, according to the report.
Luckily, for buyers facing this conundrum, there are options available if they’re willing to think outside of the box. Mortgages with alternative loan terms and lenders with flexible loan modification policies are possibilities to consider, David Temko, CEO of mortgage brokerage firm C2 Financial, told CNBC Select.
“For homebuyers, the key isn’t job certainty, it’s structuring the mortgage intelligently so it can handle income volatility,” Temko said. “Historically, every major productivity wave from the internet to cloud computing has caused temporary unemployment shifts before creating new opportunities,” Temko added, referring to the growing popularity of AI.
CNBC Select outlines planning techniques and loan types that lend themselves to a period of economic uncertainty.
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Make sure to have six months of expenses saved up
The best way to protect yourself when buying a home, especially if you’re worried about layoffs and your income, is to be prepared — that means saving well.
The average duration of unemployment as of February is just over 25 weeks (about six months), according to the U.S. Bureau of Labor Statistics. Creating a fund that would cover six months of expenses — including any housing costs — can make buying a home amid economic uncertainty feel less risky.
A high-yield savings account or money market account is an ideal place to put your emergency fund: with these accounts, you’ll be able to easily withdraw funds when you need them, but you’ll get a higher annual yield than you would with a traditional savings account. Here are our top picks for HYSAs and MMAs.
Look at lenders with easy loan modification and free refinancing
Next, choose a lender that offers flexible loan modification, free refinancing or a no-refinancing rate drop.
“The structure of the mortgage often matters more than the interest rate, so it’s payment flexibility, modification pathways and the ability to refinance later, these are great ways to protect borrowers,” Temko said.
For service members and their families, Navy Federal Credit Union is an excellent option for a no-refinancing rate drop lender. Borrowers with eligible loan types — like jumbo fixed-rate loans and Homebuyers Choice loans — can lower their rate as they go down, without refinancing, for a $250 fee. Not only that, but Navy Federal has lower-than-average rates and a range of loan options. For those who may need to cut back on expenses in the future, this lender can offer a path to do so.
However, only active service members, veterans, their children, grandchildren, siblings and parents can join Navy Federal.
Rocket Mortgage is known for working with borrowers on loan modifications if they experience unforeseen financial circumstances, like a layoff or a change to a lower-paying job, according to ConsumerAffairs. Additionally, Rocket Mortgage consistently ranks at the top in J.D. Power customer satisfaction reviews.
Rocket Mortgage
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Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages are available.
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Types of loans
Conventional loans, FHA loans, VA loans, Jumbo loans, low-down-payment mortgages
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Terms
10-, 15- and 30-year fixed-term conventional loans, 30-year VA and FHA loans, custom mortgages with fixed-rate terms from 8 to 29 years.
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Credit needed
620 for conventional loans
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Minimum down payment
0% for VA, 1% for RocketONE+, 3% for conventional, 3.5% for FHA, 10% to 15% for jumbo
Rocket doesn’t have in-person retail locations, though, so that may be a deal breaker for those who prefer to do their lending in person.
Government-backed loans like FHA, VA, and USDA loans all offer robust loan modification programs that can help you if you experience an unforeseen financial event.
Go with alternative loan structures
Just because the economic conditions feel unstable now doesn’t mean they will be later. And vice versa.
You may want to choose a loan structure that lets you pay less now and more in five years — maybe you know you’ll be earning more or will be more financially secure. Conversely, you may want to pay more up front so you have a smaller payment down the road.
There are mortgages for both of these scenarios. Both 15-year fixed-rate mortgages and adjustable-rate mortgages typically boast lower rates than 30-year fixed-rate mortgages.
With a 15-year mortgage, you’ll pay more per month for 15 years, but then you won’t have a mortgage. With an adjustable-rate mortgage, you’ll pay back your loan at a lower rate for the first three, five or seven years, and then your rate will adjust at regular intervals. If the thought of having an adjustable rate scares you, it’s important to remember you’ll be able to refinance before the adjustable term arrives.
“We’re kind of fixated on a 30-year mortgage, and I just don’t feel that that is really something to get really hung up on,” Temko said.
These types of mortgages may help you buy a home and pay it back in a way that matches the trajectory of your income.
Chase Bank and Rate are two lenders that top our list of best mortgages. Each has a strong customer service record and a diverse array of loan types, including 15-year and adjustable-rate mortgages.
Chase Bank
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Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
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Types of loans
Conventional loans, FHA loans, VA loans, DreaMaker℠ loans and Jumbo loans
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Terms
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Credit needed
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Minimum down payment
3% if moving forward with a DreaMaker℠ loan
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Offers first-time homebuyer assistance?
Rate
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Annual Percentage Rate (APR)
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Types of loans
Conventional, FHA loan, VA loan, jumbo loan, physician loan, refinancing, HELOC, reverse mortgage
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Terms
15-year and 30-year terms for fixed-rate mortgages; adjustable-rate mortgages have 5-year, 7-year or 10-year introductory periods
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Credit needed
620 for conventional, 580 for FHA loans
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Minimum down payment
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At CNBC Select, our mission is to deliver high-quality service journalism and comprehensive consumer advice to our readers, enabling them to make informed financial decisions. Every mortgage review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties and we pride ourselves on our journalistic standards and ethics.
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